Mortgage or Rent? Why a Mortgage Is a Better Investment

Home ownership provides more benefits than renting. If you are going to pay to keep a roof over your head, it might as well be a place that you own, right? Unfortunately, when it is time to move, many decision makers are not sure whether it is better to get a mortgage or to rent.

Advantages of Buying a Home

Buying a home far outweighs renting a similar property or an apartment. Yet, achieving the American Dream of home ownership is not too difficult.

With a solid plan and some discipline, you might discover that affordable home loans are available for qualified first-time home buyers.

Some of the advantages of buying a home are shown below:

Payment stability

Ownership equity

Make property improvements (without permission from a landlord)

Tax advantages (varies by situation – consult your accountant)

Ability to sell or rent the property

Why a Mortgage is a Better Investment Than Renting

Real estate is a leading builder of wealth around the world. Generally, a mortgage is used to finance the cost of a home. When you obtain a mortgage loan, you gain control of the property.

A mortgage enables you to leverage the cost of an asset. Therefore, you could make a down payment that is 3.5% or less toward the purchase price of a home that might become more valuable.

For instance, if you purchased a home for $250,000 with a 3.5% down payment ($8,750), your investment would double, based upon the amount of money that you put toward the purchase price, if the property value grows to $258,750.

After your down payment of $8,750, your mortgage balance would start at $241,250. If the property value increases to $258,750, there is a difference of $17,500. Therefore, your equity gain is twice the amount of your initial investment.

Also, if the property value never rises above $250,000, you still gain equity in the home as your mortgage balance decreases. Unlike rental payments, you decrease the amount owed on your home with each principal mortgage payment.

This is a major reason that a mortgage is a better investment than renting. Hence, if you never buy a home, you will always pay rent, while a home buyer who obtains a 15-year fixed rate mortgage or a 30-year fixed rate mortgage will not be required to make monthly house payments after the loan is paid off.

Although annual property taxes and an annual homeowners insurance premium are likely to continue, buying a home is still a better deal.

Payment Stability of a Mortgage Versus Renting

When you are renting a home on an annual lease, a landlord or property manager could increase your rental amount at each renewal period.

For instance, after four years of annual rent adjustments, a $75 monthly rent increase could grow to $300 above your initial rental rate.

With a fixed-rate mortgage, your monthly housing payment is stable for the duration of the loan term; therefore, you will not be caught off-guard with escalating rental rate

Considerations

As a homeowner, you might be able to borrow against the equity in your home, while renting only provides an investment benefit for the property owner.

Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.

"I've had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership."

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